Quarter after quarter, the nation’s largest banks have proven their durability amid a challenging economic environment. They also passed the Federal Reserve’s stringent stress test in June, even after a spate of upheaval rocked the industry in March. Regulators have had to admit that the sector has been resilient in the face of stress, even as they prepare tougher capital rules.
“We think that economic growth in the U.S. will falter, which is generally associated with less credit, lower fee income, more provisioning, and higher credit losses,” Hubert de Barochez, markets economist at Capital Economics, wrote this past week. The SPDR S&P Bank ETF now trades at just seven times 12-month forward earnings and 0.9 times book value, both of which are “quite low, both by historical standards and relative to other industries” de Barochez wrote. Meanwhile, investors can snatch a 3.7% yield by investing in the index, lower than the 10-year Treasury’s near 5%, but a payout that also comes with the chance for stock appreciation.
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